Midprice trading within a spread market

ABSTRACT

A system and method is provided to allow traders to submit midprice orders to trade at a price within a spread of a market, preferably at the midpoint of a spread market, while maintaining anonymity of the midprice order. A midprice order is anonymous because other traders do not know whether the submitted midprice orders are orders to buy or orders to sell. A midprice order may remain active until it is traded with a contra midprice order or until a parameter associated with the order is breached, thereby resulting in cancellation of the midprice order.

CROSS-REFERENCE TO RELATED APPLICATION

The present application is a continuation of U.S. patent applicationSer. No. 10/397,109 filed Mar. 24, 2003 now U.S. Pat. No. 7,827,089,which is hereby incorporated by reference herein in its entirety.

BACKGROUND OF THE INVENTION

This invention relates to systems and methods for trading within aspread market for a particular item. More particularly, systems andmethods are provided to trade a particular item at the midprice of thespread market while maintaining anonymity of the order.

Electronic matching and dealing systems have found successfulapplications in many trading activities, including the buying andselling of a variety of items, such as goods, services, securities, andcurrency. Electronic trading systems have become popular for the tradingof securities, particularly for the trading of fixed-income securities,such as United States Treasuries, United Kingdom Gilts, EuropeanGovernment bonds, and Emerging Market debts, and non-fixed incomesecurities, such as stocks.

In a method of electronic trading, bids and offers are submitted bytraders to a trading system. A bid indicates a desire to buy while anoffer indicates a desire to sell. These bids and offers are thendisplayed by the trading system to other traders. The other traders mayrespond to these bids and offers by submitting sell (or hit) or buy (orlift or take) commands to the trading system. A trade has been executedonce a trader has issued a hit or lift (or take) command to the tradingsystem. A trade has been executed once a trader has issued a hit or lift(or take) command in response to a bid or offer, respectively.

In a market, there often exists a spread (a differential in price)between the bid price and the offer price, or between the buy price andsell price. Such markets having disparity among the bid and offer or buyand sell prices are often referred to as spread markets. In conventionalspread markets, traders may hit a bid or lift an offer to execute atrade, or traders may submit new bids or offers that improve on existingbid or offer prices. In some occasions, a trader may not be willing tohit a bid or lift an offer for a given spread market, but would bewilling to trade at a price located within the spread market. Such anability to trade within the spread of the market could facilitatetrading and thereby create a more liquid market.

However, conventional trading systems do not enable traders to submitbuy or sell orders to trade at a price inside or at a midpoint of aspread market, in which the traded price is a price between the minimumallowable increments of the spread market. For example, if the marketallows increments of 1, then an item may not be traded at 1.5. Rather,conventional trading systems require that a trader submits a new bid oroffer and waits for another trader to hit or lift the new bid or offerin order to execute a trade. In addition, there are trading systems thatallow traders to submit orders during a collection period. Then during amatching period, the collected orders are matched up with each other.This type of trading scheme does not provide for continuous tradingbecause of the requisite collection period. Moreover, because orders arecollected, a complex matching algorithm is needed to match the ordersduring the matching period.

In view of the foregoing, it would be desirable to provide an electronicmarket that enables a trader to buy or sell an item at a price existingwithin a spread market for a particular item at any given time.

SUMMARY OF THE INVENTION

This and other objects of this invention are accomplished by enablingparticipants to buy or sell items at a price inside or within the spreadmarket. A price inside a bid or offer price is a price that may inducetrading among prospective buyers and sellers because the inside price iscloser to market (i.e., price at which bid and offer price are thesame). In some cases, traders trade at the midpoint of the spreadmarket. The midpoint, sometimes referred herein as the midprice, is theprice existing in the middle of the spread market. Enabling marketparticipants to trade at the midprice of a spread market provides anincentive for market participants to deal (i.e., buy or sell) at pricesother than those currently available in the market (e.g., the bid andoffer prices of the spread market). For example, if the spread markethas bid and offer prices of 4.00 and 5.00, respectively, a trade beingexecuted at the midprice may trade at a price of 4.50.

In another embodiment, a midprice order may be executed at a pricewithin the spread market, but at a calculated price, which may or maynot be the midprice. The calculated price is weighted towards either thebest bid or offer price available in the market, depending on severalfactors. The factors can include, for example, the number of buyer orsellers associated with the best bid offer prices and the size of thebids or offers at the best prices.

In order for market participants to trade at the midprice, two or moremarket participants (at least one buyer and at least one seller) areneeded to form a “midprice market” in which items can be exchanged. Inorder for items to be exchanged at the midprice, a market participantneeds to submit “a midprice order” indicating a desire to trade at themidprice. A midprice order is an affirmative order to trade at a pricewithin the spread market, and the midprice order may remain active untilit is matched with a contra midprice order or until certain parameters(discussed below) cause its cancellation. Once this order is received,it is checked with other midprice orders to determine whether it can bematched (i.e., a midprice order to buy can be matched with a midpriceorder to sell) with another midprice order so a trade can be executed.

When a midprice order is received by the trading system, a signifyingmark is displayed to indicate to other traders that at least one traderis willing to deal at the midprice. In one embodiment of the invention,traders are not made aware of whether the midprice order is an order tobuy or sell or the size of the order. Note that certain embodiments ofthe present invention may enable traders to know the size of midpriceorders, but not whether it is an order to buy or sell. When tradersbegin submitting orders in response to the signifying mark, orders oflike kind (e.g., buy orders) are queued, for example, according to thetime in which they were received by the trading system. Thus, if severalorders of like kind are received, the orders queued first may be thefirst orders used to fill contra orders. A midprice order to buy iscontra to a midprice order to sell.

Various market forces can cause the market to move, thereby causing thespread market to change prices. When the market moves, the midpoint orcalculated trading price may move too. For example, if the market bidprice moves from 4.00 to 4.40 and the market offer price moves from 5.00to 5.40, the midprice changes to 4.90 from 4.50. Because the midpriceand market prices can change, they may move beyond a range in which amarket participant is willing to trade. Therefore, this inventionenables market participants to set parameters (e.g., limits) for whichtheir midprice orders are kept active for midprice trading. In anotherembodiment, the trading system may set parameters (e.g., limits) forwhich each midprice order is kept active.

Each midprice order submitted to the trading system is subject to atleast two parameters. One such parameter is a price spread parameter.This parameter indicates the range of market prices in which a midpriceorder is kept active. If the spread of the market (i.e., differencebetween the bid and offer prices) moves beyond a predefined limit, theorder is cancelled. The price spread parameter can be equal to orgreater than the spread of the market, but less than the maximum pricespread parameter which is set by the trading system.

Another parameter that midprice orders are subject to may be a price outparameter. This parameter can cause an order to be cancelled when themidprice of the market moves to the price set by the price outparameter. For example, if the price out parameter for a particularorder is set at 5.50, the midprice order will remain active until themidprice of the market reaches 5.50.

This invention includes at least two prevailing methods in whichmidprice trading can be implemented. One method is a system controlmethod and another is a user control method. In the system controlmethod, the price spread and price out parameters and any otherparameters can be set and controlled by the trading system. In the usercontrol method, the trader can set or define the price spread and priceout parameters and any other parameters.

Regardless of which method is used, either method can be implementedwith a variety of trading schemes such as, for example, Direct Dealing(hereinafter “DD”), or request for quote style trading and normal marketstyle trading.

In DD style trading, there are requestors and responders. The requestorscan enter a request to deal on a particular item or instrument at themidpoint of the spread market, thereby providing an affirmative interestto trade at the midpoint. A requestor may enter a request with aspecific midprice buy or sell order, or a requestor may request amidprice order to trade a specified size without indicating an interestto buy or sell. A trader may respond to that request by submitting anorder to buy or sell the instrument at the midprice.

Normal market style of trading involves midprice trading in which marketparticipants submit buy or sell midprice orders and those orders thatare contra to one another are matched, and those that are similar (e.g.,two or more sell orders are similar to each other) are queued forsubsequent potential matching.

BRIEF DESCRIPTION OF THE DRAWINGS

The above and other features and advantages of the invention will beapparent upon consideration of the following detailed description, takenin conjunction with accompanying drawings, in which like referencecharacters refer to like parts throughout, and in which:

FIG. 1 is a block diagram of a system that may be used to implement theprocesses and functions in accordance with certain embodiments of thepresent invention;

FIG. 2 is an illustration of a dialog window that may be generated inaccordance with certain embodiments of the present invention;

FIG. 3 is an illustration of a market cell that may be generated in a DDstyle of trading which is in accordance with certain embodiments of thepresent invention;

FIG. 3A is an illustration of a market cell after a market participantsubmits an order to trade at the midprice in a DD style of trading whichis in accordance with certain embodiments of the present invention;

FIG. 4 is an illustration of an alternative market cell shown to allmarket participants after one or more midprice DD orders have beensubmitted to the system using a DD style of trading which is inaccordance with certain embodiments of the present invention;

FIG. 5 is an illustrative step-by-step example of midprice tradingcommencing in the market cell of FIG. 4 in accordance with certainembodiments of the present invention;

FIG. 6 is an illustrative market cell shown to market participantstrading in a normal market style of trading in accordance with certainembodiments of the present invention;

FIG. 7 shows an illustrative series of snapshots of trading commencingin a normal market style of trading in accordance with certainembodiments of the present invention;

FIG. 8 shows a flowchart illustrating a system control method ofmidprice trading being implemented in a normal market style of tradingin accordance with certain embodiments of the present invention;

FIG. 9 shows a flowchart illustrating a system control method ofmidprice trading being implemented in a DD style of trading inaccordance with certain embodiments of the present invention;

FIG. 10 shows a flowchart illustrating a user control method of midpricetrading being implemented in a normal market style of trading inaccordance with certain embodiments of the present invention; and

FIG. 11 shows a flowchart illustrating a user control method of midpricetrading being implemented in a DD style of trading in accordance withcertain embodiments of the present invention.

DETAILED DESCRIPTION OF THE INVENTION

Referring to FIG. 1, an exemplary system 100 for implementing thepresent invention is shown. As illustrated, system 100 may include oneor more trading workstations 101 that may include a mouse 106, a keypad107, and a display 108. Workstations 101 may be local or remote, and areconnected by one or more communications links 102 to a computer network103 that is linked via a communications link 105 to a server 104.

In system 100, server 104 may be any suitable server, processor,computer, or data processing device, or combination of the same.Computer network 103 may be any suitable computer network including theInternet, an intranet, a wide-area network (WAN), a local-area network(LAN), a wireless network, a digital subscriber line (DSL) network, aframe relay network, an asynchronous transfer mode (ATM) network, avirtual private network (VPN), or any combination of any of the same.Communications links 102 and 105 may be any communications linkssuitable for communicating data between workstations 101 and server 104,such as network links, dial-up links, wireless links, hard-wired links,etc. Each workstation enables a participant to engage in the tradingprocess. Workstations 101 may be personal computers, laptop computers,mainframe computers, dumb terminals, data displays, Internet browsers,Personal Digital Assistants (PDAs), two-way pagers, wireless terminals,portable telephones, etc., or any combination of the same.

A back office clearing center 112 may also be connected to server 104 ofthe trading system via communications link 110. Clearing center 112 maybe any suitable equipment, such as a computer, or combination of thesame, for causing trades to be cleared and/or verifying that trades arecleared. If desired, server 104 may contain multiple processors.

FIG. 2 illustrates one embodiment of a graphical interface forsubmitting trading commands using, for example, a workstation as shownin FIG. 1. As shown, the graphical interface comprises a dialog window200 with various buttons and entry fields 202-262. Using these buttonsand entry fields, a trader may submit a bid command, an offer command, abuy command, or a sell command for an item corresponding to a marketcell. A market cell is illustrated below in, for example, FIGS. 3 and 4.

Dialog window 200 may be opened automatically and/or manually before,during, and/or after a trade, and may allow a trader to submit a tradecommand at any time. The dialog window may be repositioned on a trader'sdisplay and/or fixed in place. The trader, preferably, will keep thewindow associated with a particular instrument below the market cell 100for the same tradable item. The number of dialog windows 200 that can bekept open at any one time is preferably unlimited.

As shown in FIG. 2, dialog window 200 may comprise a variety ofon-screen buttons and entry fields. Generally, a button, as displayed inbox 200, may be “pushed” by placing a pointing device's pointer over thebutton and pressing a switch on the pointing device, as is commonlyknown in the art. At the center of window 200, a numeric keypad 202 maybe displayed. The numeric keypad 202 may provide buttons for numberszero through nine, and may contain buttons for numbers ten, twenty-five,fifty, and one hundred or any other suitable or desirable values. Thenumeric keypad 202 may also contain a plus button (“+”), a minus button(“−”), a decimal point button (“.”), a backspace button (“BKS”), and adelete button (“DEL”).

In addition to displaying a numeric keypad as described above, dialogwindow 200 may also provide a user with a buy button 204, a sell button206, a cancel buys button 208, a cancel sells button 210, a bid button212, an offer button 214, a cancel bids button 216, a cancel offersbutton 218, cancel all buttons 220, cancel all for all instrumentsbutton 222, a price entry field 224, price up and down buttons 226, bidprice up and down buttons 228, offer price up and down buttons 234, asize entry field 230, and size up and down buttons 232, Vs Lock Priceentry field 233, Lock Price entry field up and down buttons 234, T-Swap#entry field 235, and T-Swap# up and down buttons 237 (T-Swap tradingrelates to a chosen price movement relationship between two differentbonds). Finally, dialog window 200 may contain a preference field (notshown) that allows a user to specify preferred types of orders (e.g.,limit order), a close-on-action box (not shown) that causes dialogwindow 200 to be automatically closed after specified actions areperformed.

Dialog window 200 also includes max spread entry field 240, max spreadup and down buttons 242, MID button 244, price out entry field 246,price out up and down buttons 248, DD MID button 250, DD BUY 252,minimum size entry field 254, minimum size up and down buttons 256, timelimit entry field 258, time limit up and down buttons 260, and DD SELL262.

Buttons 240-262 enable a market participant to submit a midprice order(e.g., a midprice order in either a normal market style or a DD style oftrading). For example, to submit a midprice order in a normal tradingstyle, a trader may select a size in size entry field 230, select MIDbutton 244, and then select either buy button 204 or sell button 206 tochoose whether the order is a buy or sell midprice order. If such amidprice order is subject to user controlled parameters, traders can setthe price spread parameter at max spread entry field 240 and/or set aprice out parameter at price out entry field 246.

The number entered into max spread entry field 240 indicates how far thespread is permitted to move before cancelling the order. For example, ifthe market at the time of order is “100-101” and the number in maxspread entry field is 2.0, the order will be cancelled when the spreadexceeds a price differential of 102 (e.g., “99−102”).

The number entered into price out entry field 246 indicates the midpriceat which an order is cancelled. The price in entry field 246 mayindicate the price a trader does not want to deal. If desired, thesystem may initially set the price out parameter to the last tradedprice of the item or any other system defined price out parameter. Ifdesired, a trader may be able to adjust the price out parameter to adesired value. If a trader chooses not to enter a number in price outentry field 246, the system may not impose a price out parameter on theorder. In this case, the order cannot be cancelled due to the price outparameter, but can be cancelled due to the price spread parameter, ormanually (by the user).

When a trader submits orders in a DD trading style, one of buttons DDMID 250, DD BUY 252, or DD SELL 262 may be selected. An initiatingtrader (e.g., requestor) may select a size at size entry field 230 andselect DD MID button 250 to indicate an interest in dealing at themidprice. Traders that respond to the requestor's interest can thenchoose a size and one of buttons DD BUY 252 and DD SELL 262 to buy orsell at the midprice.

Note that certain features of dialog window 200 may not be available ifthe trader is trading in a system controlled method of trading. That is,in a system controlled method of trading, traders may not be permittedto manually set the price spread or price out parameters. However, in auser controlled method of training, the trader can set the price out andprice spread parameters for either the DD or normal market style oftrading.

If desired, traders can set a minimum trading size in minimum size entryfield 254 Various markets may require that a minimum size be entered tosatisfy any minimize size requirements of a market. Traders may alsoenter a time limit (in time limit entry field 258) for which aparticular order will remain active. Time limits on midprice orders canapply to both manual and request for quote style of trading.

Note that traders may be able to use other devices such as, for example,a keyboard or an interface specifically designed for use with thetrading system to place trades and have a similar level of interactionwith other trading systems provided by dialog window 200.

FIG. 3 shows an exemplary market cell 300 that can be displayed totraders that are monitoring and/or participating in a market. Marketcell 300 shows that the trader is participating in a market in whichselected item 302 is being traded. Selected item 302 may be any suitabletype of commodity or suitable financial instrument such as, for example,securities, bonds, coupons, stocks, gold, oil, (monetary) deposits,certificate of deposits, etc.

Market cell 300 shows the price 304 and size 306 of item 302 beingtraded. In this particular embodiment, the prices shown for item 302 areyield prices. Yield prices, as opposed to ordinary prices, indicate theyield available for a given item. For item 302, the current market price304 is “5.196-5.192.” This is known as the bid/offer yield price inwhich 5.196 (the number to the left of the hyphen) represents the yieldbid price, while 5.192 (the number to the right of the hyphen)represents the yield offer price. The bid and offer prices collectivelycomprise the spread market. The size of item 302 “50×20” may representthe bid and offer size, respectively, of the current market. The size306 may represent the value in the hundreds (i.e., ×100), thousands(i.e., ×1,000), or millions (i.e., ×1,000,000). Last price 310 indicatesthe last price at which item 302 was traded. As shown here, item 302 waslast traded at “5.192.” Market cell 300 also shows price, size, and lastprice information for other items that were previously traded in themarket, such as item 312. This information provides users with marketdepth and/or market history information.

This invention enables traders to deal an item at the midprice of aspread market. That is, a midprice is the price existing halfway betweenthe spread market at which a particular item is traded in a market. Forexample, if the market is 5.00 (to buy) and 6.00 (to sell), the midpointprice is 5.50. While the market remains static at these prices, tradersthat are willing to trade at the midprice will trade at 5.50. Note thatthe midprice is not necessarily static and that it is subject to change,depending on fluctuations or changes in the market. Midprice tradingadvantageously provides a trading option that may facilitate liquidityof certain markets and enable traders to trade on items inside regularprice increments. Regular price increments may be fixed increments inwhich traders are able to increase or decrease bid or offer prices.

This invention may also enable traders to deal an item at a price withinthe spread market that is calculated based on several factors. Ratherthan using the midpoint of the spread market as the trading price, acalculated trading price advantageously provides flexibility in theprice used to trade midprice orders. For example, a calculated midpricemay be based on the buyer's weight (i.e., number of bids and theirrespective sizes) versus the seller's weight (i.e., number of offers andtheir respective sizes), wherein the bids and offers are associated withthe best bid and offer prices available in the market.

FIG. 3A shows an illustrative market cell 350 that is shown to allmarket participants after a market participant submits a request to dealat the midprice in a DD style of trading. In DD style of trading, twotypes of traders interact with the trading system. The two types oftraders are requestors and responders. A requestor submits a request formidprice quote to designate an intention to buy or sell at the midprice,including the size (i.e., number of items to buy or sell). A respondersubmits an order indicating a willingness to buy or sell at themidprice. When a responder's order matches a requestor's order, atransaction commences between that responder and the requestor. Inaddition, if two or more responders have orders that can be matched,trading can commence between the responders.

Market cell 350 is substantially similar to market cell 300 exceptmidprice identifier 356 is displayed to all market participants toindicate that at least one market participant is willing to deal at themidprice (i.e., at least one midprice order is active). Midpriceidentifier may be a suitable identifier such as, for example, a “?”,“*”, “MID”, etc., and may be displayed in any suitable location inmarket cell 350, but preferably between the bid and offer price 304.Midprice identifier 356 is intially displayed when a market participantsubmits a request to trade at the midprice, indicating the size andorientation (e.g., buy or sell) of the order. Thereafter, midpriceidentifier 356 is displayed when a midprice order is available fortrade. The size and orientation of this order, however, is not shown tothe other market participants. Moreover, if a market participantresponds to the midprice interest, that market participant's order(e.g., size and orientation) is not shown to the other marketparticipants.

Midprice identifier 356 is displayed because midprice orders may beanonymous and therefore may not be displayed in market cell 350. Becausemidprice orders may be anonymous, traders may not know whether thesubmitted midprice orders are orders to buy or sell. In addition,traders may not know the size of each midprice order. Note that eachmidprice order may have an associated price spread parameter and a priceout parameter.

The trading system in which market cell 350 operates may determine whichmidprice DD orders, if any, are matched to each other. In order formidprice DD orders to match, two orders have to be contra or opposite toeach other. For example, a buy DD order is contra to a sell DD order.The following example further illustrates midprice trading according tothe principles of the present invention.

In this example, assume that the requesting midprice DD order is a buyDD order with a size of 100. After midprice interest 356 is displayed,one or more market participants may submit a midprice DD order (e.g.,responding DD orders). If a second midprice DD order is a buy order for100, that order is queued behind the initial order. Because both theinitial and second orders are buy orders, the requesting order is queuedfirst because it was submitted before the second order. If a midprice DDsell order of size 150 is received, the initial buy order is matchedwith a portion of the sell order and half of the second buy order isused to fill the sell order. As result, a buy DD order of size 50 iscurrently available for midprice trading.

FIG. 4 shows alternative illustrative market cell 400 that is shown toall market participants after one or more midprice DD orders have beensubmitted to the system using an DD style of trading. Market cell 400includes a market cell similar to that shown in FIG. 3A and alsoincludes DD trading window 420, which includes item 422, side 424 (e.g.,type of trade), size 426, start price 428, price 430, and trading stack432. DD trading window 420 may be presented to the market participantswhen there is a midprice interest, or whenever traders are participatingin DD trading.

As illustrated in DD trading window 420, midprice indicator 416 isdisplayed to alert market participants that a midprice order isavailable in this market. In addition, trading stack 432 shows sizes oforders that are available for trading at the midprice. In thisembodiment, all market participants may be aware of the size availablefor midprice trading, but do not know whether midprice DD order is anorder to buy or sell. A market participant can learn whether themidprice orders are buy or sell orders after submitting a midprice DDorder. For example, if a trader submits a buy order that is queued intrading stack 432, that trader (who just submitted the buy order) willknow that the sizes in stack 432 are associated with buy orders. If thatparticipant's order was a sell order, that order would be matched to thetop listed size in stack 432, thus indicating to the participant thatthe listed sizes correspond to buy orders.

FIG. 5 illustrates a step-by-step example of midprice trading commencingin market cell 400 in accordance with the principles of the presentinvention. More particularly, snapshots of price 430 and trading stack432 of DD trading window 420 of market cell 400 is displayed in FIG. 5to provide clarity and to prevent overcrowding of the figure. At step510, stack size 540 is a buy order (of size 500) submitted by therequesting market participant—the market participant that provided theinitial DD midprice interest. Stack sizes 542 and 544 are also buyorders (of sizes 200 and 400, respectively) submitted by responders(i.e., market participants that submitted orders in response to therequestor's midprice interest).

Step 520 shows a snapshot of the DD trading window after a marketparticipant submits a DD midprice sell order of size 600. Once thismidprice sell order is received, the system matches stack size 540 and100 units of stack size 542 to the sell order. As a result stack size542 has size of 100 and stack size 544 remains the same at 400. Notethat the requesting market participant is no longer involved in midpricedealing. That said, midprice indicator 516 is still displayed becauseother participants are prepared to deal at the midprice.

Step 530 shows a snapshot of a portion of the DD trading window afterstack size 542 has been cancelled. Note that price 502 has changed fromthe price in step 520. Because of the change in price, the price spreadparameter or the price out parameter, or both may have been breached,which caused the system to cancel the order affiliated with stack size542. After stack size 542 is removed, only stack size 544 remains forpotential midprice trading.

FIG. 6 shows an illustrative market cell 600 of a bid/offer spreadmarket in which a normal market style of trading is provided inaccordance with the principle of the present invention. Market cell 600includes item 602, price 604, size 606 and last price 608. Market cell600 also includes market depth information 610, which shows price andsize for items previously traded. Also shown in market cell 600 are bidand offer stacks 612 and 614, respectively. Bid and offer stacks 612 and614 may indicate the size a market participant is bidding or offering atthe current price 604. Note that price 604 (shown as 100.00+?100.012) isshown in a traditional United States Government Bond pricing format, notthe yield pricing format of that shown in FIGS. 3-5.

In a normal market style of trading, market participants may submit bidor offers or hit or lift a bid or offer. Unlike request for quote/DDstyle of trading, market participants do not submit requests for quotesor respond to those requests. A detailed explanation of a normal marketstyle of trading can be found in U.S. Pat. No. 5,905,974, which ishereby incorporated by reference in its entirety. In accordance withthis invention, a market participant can submit orders to deal at themidprice of the market shown in price 604. As shown, midprice indicator620 is displayed to indicate to other participants that at least oneparticipant is prepared to deal at the midprice.

In normal market trading, all midprice orders are subject tocancellation pursuant to the price spread and price out parameters andother suitable parameters such as time limits. All midprice orders canbe anonymous with respect to buy/sell orientation and the orientation ofthe orders may or may not be made available to the market participants.Thus, when a market participant submits an order, that participant mayhave no way of knowing if the submitted order will be matched.Furthermore, the identity of traders submitting midprice orders may ormay not be anonymous to other traders.

FIG. 7 further illustrates midprice trading in a normal market style oftrading by showing a series of snapshots. Because market participants donot see other midprice orders, FIG. 7 illustrates the receipt andmatching of orders viewed from a system standpoint. Moreover, FIG. 7also shows the starting price, the price spread parameter, and the priceout parameter for each midprice order. The parameters can be set by theuser or by the system. For purposes of this illustration, users have theopportunity to set the parameters.

Furthermore, the instruments being traded in FIG. 7 are U.S. treasurybonds. As known in the art U.S. treasuries are traded at a percentage ofa bond's face value. This percentage is typically broken down into 32ndsof a point and fractions thereof. The prices shown in FIG. 7 representthe whole number portion and the percentage being traded. For example,consider “100.011.” The number left of the decimal point (“100”) isequivalent to the whole number portion of the price and the number rightof the decimal point (“011”) is equivalent to the fractional portion.More particularly, the first two digits right of the decimal point(“01”) represent then number of 32nds there are and the third digitrepresents the number of 8ths of a 32nd there are. In this case, thefraction appended to the whole number portion of the price is 1/32nd and⅛th of a 32nd. Note that some prices may have “+” in the third digitright of the decimal point. The “+” may represent 4/8ths of a 32nd orhalf a 32nd, and may be displayed in this instance instead of a “4”.Table 1 below shows several examples of the three digit numbers to theright of the decimal point and their fractional equivalents.

TABLE 1 FRACTIONAL PORTION FRACTIONAL OF A PRICE EQUIVALENT 010 1/32 0111/32 & ⅛ of a 32nd 012 1/32 & ¼ of a 32nd 013 1/32 & ⅜ of a 32nd 014 or01+ 1/32 & ½ of a 32nd 015 1/32 & ⅝ of a 32nd 016 1/32 & ¾ of a 32nd 0171/32 & ⅞ of a 32nd

Note that the above description of concerning U.S. treasuries is merelyan example of an instrument that may be traded using the presentinvention.

Midprice snapshot 700 shows the current price of the market at price704, orientation 706, size 708, price out parameter 710, price spreadparameter 712, and start price 714. Midprice order 715 is a buy orderwith size “200.” The market participant that submitted this orderselected a price out of “100.012” and price spread of “0.02.” If themidprice of the market reaches or exceeds price out 710 of “100.012,”the system can cancel midprice order 715. If the spread of the marketexceeds price spread 712 “0.02,” the system can cancel midprice order715. Start price 714 (shown as “100.006”) is displayed to indicate themidprice of the market when the order was submitted.

Midprice snapshot 720 shows new midprice order 721 with a buyorientation, a size of 100, price out of “100.01+,” price spread of“0.02,” and a start price of “100.010.” Start price 714 of midpriceorder 721 is different than the start price of midprice order 715because the market price changed to “100.00+-100.01+.” Before referringto snapshot 730, assume that a midprice sell order of size 200 wassubmitted.

Midprice snapshot 730 shows that midprice order 715 has been removedfrom the system because it was matched with the above-mentioned sellorder. Hence, midprice order 715 was traded at the midpoint of thespread, which is “100.010.” Because midprice order 715 has been matchedwith a contra order, midprice order 721 is now the lone order remainingin the queue. If, for example, another sell order is submitted to thesystem, midprice order 721 may be used first to fill that sell order.

Midprice snapshot 740 shows that midprice order 721 has been removedfrom the queue. As shown in price 744, the spread is “100.01+-100.02.”In fact, midprice order 721 may have been cancelled because the midpointof the spread market is “100.016.” A midpoint of “100.016” exceeds theprice out parameter for midprice order 721, which is “100.01+”, therebyresulting in cancellation of midprice order 721.

Note that the snapshots shown in FIG. 7 are merely illustrative and thatadditional snapshots may be added or that certain snapshots may bedeleted.

FIG. 8 shows a flowchart 800 illustrating a system control method beingimplemented in a normal market style of trading in accordance with theprinciples of the present invention. At step 810, a midprice order issubmitted. Once a midprice order is submitted, the system defines astart price. The start price sets a basis for determining when the ordercan be canceled. The start price can be set by using the midprice at thetime the order is submitted, as shown in step 814. If the market isactively trading, that is, there is a spread differential of zero, thetrading price may be used as the start price.

At step 816, the system defines the price spread threshold parameter.The price spread parameter sets a limit for how wide the spread marketcan get before an order is cancelled. For example, if the spread marketparameter for a particular order is “0.02,” that order can be canceledwhen the spread of the market exceeds “0.02.” Thus, any order initiallysubmitted to the system may have a price spread parameter that is atleast equal to the market spread. Otherwise, if the price spreadparameter is less than the current market spread, the order may becancelled immediately upon receipt by the system.

At step 820, the system defines a price out parameter. The price outparameter defines how far the market midprice is able to move from thestart price before canceling the order. For example, the system maydefine a price out parameter of 3/32nd of a point. If this parameter isassociated with a buy order, the order may be cancelled when themidpoint of the spread rises 3/32nd of a point above the start price. Ifthis parameter is associated with a sell order, the order may becancelled when the midpoint of the spread falls 3/32nd of a point belowthe start price.

Note that if the midprice order is a limit midprice order, the order maynot be cancelled when a parameter is breached. Rather, trading of thisparticular order may merely be suspended during the duration of aparameter breach. If the market moves back to a position which is withinthe limits set by the parameters, the order may be reactivated.

Now that flowchart 800 has assigned the requisite parameters fordetermining whether an order should be cancelled, flowchart 800continues to step 830. At step 830, the system determines if the marketspread has expanded beyond the price spread threshold. If the pricespread threshold is exceeded, the order is canceled at step 834,otherwise if the price spread threshold is not breached, the order ismaintained and process 800 proceeds to step 832. At step 832, the systemdetermines whether the price out parameter has been exceeded. If theprice out parameter has been exceeded, the order is canceled at step834. If the price out parameter is not exceeded, the order is maintainedand the process proceeds to step 840.

Note that the parameters tested for in steps 830 and 832 may becontinuously checked to determine whether an order can be canceled. Asillustrated in flowchart 800, a feedback loop is provided to show thatthese parameters may be arbitrarily checked.

At step 840, the system determines if this order can be matched with anyother orders. Orders that can be matched are orders that are contra oropposite to each other. For example, a buy order and a sell order arecontra to each other. If this order cannot be matched, it is queuedaccording to time priority at step 846. Orders are queued according totime so the system can determine which order should be used first whenmatching contra orders.

If at step 840, it is determined that an order can be filled, theprocess proceeds to step 844. At step 844, the system matches oppositeorders to the fullest extent possible. Orders are matched to the fullestextent possible because various buy and sell orders may have differentsizes. For example, assume that several “small” size sell orders arequeued in the system before a “large” size buy order is accepted.

Once the buy order is received, the system begins to match this buyorder with the queued sell orders. Assuming that the sell orders areable to fill seventy percent of the buy order, the buy order is filledto the fullest extent. The remaining portion (thirty percent) of the buyorder remains active, ready to fill any additional midprice sell orders.Any portion of the order that is not used to fill an existing order isplaced in a queue, as shown in step 846.

The trading system may impose a temporary delay in filling orders whenthe midpoint of the spread market changes. For example, the system mayimpose a delay for some predetermined period of time (e.g., one second)to avoid execution of trades at unexpected prices. More particularly, ifa user is about to enter an order to deal at the midpoint, the systemmay force the trader to wait for a predetermined period of time prior toaccepting that order.

Moreover, if a market participant submits an order to hit a bid or lift(or take) an offer when midprice orders are currently active in themarket, the system may fill the hit or lift order with a contra midpriceorder. For example, if a midprice order to sell is available in themarket and a trader takes an offer, the system may use the midpriceorder to fill the trader's hit.

Note that steps shown in FIG. 8 are merely illustrative and thatadditional steps may be added and some of the steps may be omitted ormodified.

FIG. 9 shows an illustrative process 900 that enables traders to placemidprice DD orders in accordance with the principles of the presentinvention. A thorough explanation of DD trading can found in UnitedStates patent application publication No. 20020198816-A1 and U.S. patentapplication Ser. No. 10/113,841 filed Mar. 29, 2002, both disclosures ofwhich are hereby incorporated by reference in their entireties.

At step 910, a trader can submit a midprice DD order, thereby making abid/offer at the midprice. Once a midprice DD order is entered, thesystem may display the start price (i.e., the midprice of the spread atthe time the midprice DD was entered). The system may indicate to othertraders that a midprice DD has been submitted by displaying a predefinedidentifying mark or symbol such as, for example, an asterisk or anexclamation point.

At step 920, traders can submit responses to the midprice request. Inthis step, traders respond by submitting a buy or sell command with aparticular size. Note that any number of traders may respond, and thetime in which the traders respond determines when that response will bematched, if it is matched at all.

Once traders begin responding, the system matches the responses at step930. That is, if a response is contra to the requestor's intention, atrade is executed between the requestor and the responder. For example,if the requestor intended to offer a thousand units of an item at themidprice and the responder submitted an order bidding a thousand unitsat the midprice selected by the requestor, the orders are matched.

The system can also match orders between responders, and not solelybetween the requestor and responders. Responders that submit responsesthat are tradable with each other can be matched. For example, if oneresponder submits an offer of 5.00 and another responder submits a bidof 5.00, trade should commence between these two responders. FIG. 9shows a feedback loop originating from step 930 and returning to step920. This feedback loop is shown to indicate that midprice tradingpersists until each midprice DD order is cancelled or matched.

Once all trading is complete or all orders are cancelled, the processends at step 940.

As discussed above in conjunction with FIG. 8, the price spreadthreshold and the price out parameters also apply to DD trading. Arequestor's midprice interest will be subject to system definedparameters that determine when to cancel the requestor's midpriceinterest. For example, if the bid/offer spread expands to such an extentthat it breaches the price spread threshold parameter for thatparticular midprice interest, the system may cancel that interest.Similarly, if the midpoint of the spread market migrates to a price thatexceeds the price out parameter set for a particular interest, thesystem can cancel that order. Responders' submissions are also subjectto the price spread threshold and price out parameters.

Note that the steps shown in FIG. 9 are merely illustrative and thatadditional steps may be added and some steps may be deleted or modified.

The above discussion concerning FIGS. 8 and 9 relates to embodiments ofthis invention that involve the system control method (i.e., the systemsets the price spread threshold and price out parameters). Thediscussion pertaining to FIGS. 10 and 11 relate to embodiments of thisinvention involving user control methods (i.e., a trader is able to setthe price spread threshold and price out parameters).

FIG. 10 shows an illustrative process 1000 of a user control methodbeing implemented in a “normal” style of trading according to theprinciples of the present invention. At step 1010, a trader can enter amidprice order, where the trader inputs a size and selects whether theorder is a bid, offer, buy, or sell order. In addition to selecting thetype and size of the midprice order, traders can modify the defaultprice spread threshold setting at step 1012, and can enter a price outparameter at step 1014. If desired, the trader can increase or decreasethe price spread threshold parameter using, for example, price spread upand down buttons 242 of dialog window 200 (of FIG. 2). In general, thelarger the price spread threshold parameter, the longer the trader'sorder may remain active in the market. The same logic applies to theprice out parameter; the farther away the price out parameter is fromthe current midprice, the longer the order may remain active.

At step 1030, the system determines if one of the parameters have beenbreached for a particular order. Preferably, the system checks eachmidprice order that is active to determine which of those orders, ifany, have a parameter that has been breached. In particular, the systemdetermines whether the price spread threshold parameter has beenexceeded and whether the price out parameter has been exceeded. Ifdesired, step 1030 can also check for any additional parameters that areattached to a particular order. For example, some orders may have a timelimit that limits the time duration in which the order remains active.If a particular order's time limit is expired, the system may cancelthat order at step 1024.

If the system determines that a parameter is breached for a particularorder, that order is canceled at step 1024. On the other hand, if thesystem determines that none of the parameters have been breached, theprocess continues to step 1040. At step 1040, the system determines ifthe recently entered order can be matched to one or more orders. If theorder can be matched, it is filled with existing orders according totime priority (e.g., order in which the order was received) in step1050. At step 1054, if the system determines that the order cannot befully filled any unfilled portion of the order is queued in step 1060.Thus, the unfilled portion of the order is queued according to timepriority and may be used to fill subsequent orders. If the process atstep 1054 determines that the order has been fully filled, then theprocess concerning this particular order is complete, which is indicatedby step 1068.

Referring back to step 1040, if it is determined that the order cannotbe matched with at least one other order, it is queued in step 1060.After the order is queued, the process proceeds to step 1068, which endsthe process for this particular order.

Note that the steps shown in FIG. 10 are merely illustrative and thatadditional steps may be added and some of the steps may be omitted ormodified.

FIG. 11 shows an illustrative process 1100 of a user control methodbeing implemented in a “DD” style of trading according to the principlesof the present invention. This process operates in a substantiallysimilar way as process 900 of FIG. 9, except that a trader is providedwith the ability to choose the parameters (e.g., price spread thresholdparameter and price out parameter).

At step 1110, a trader enters a midprice DD order and can define a pricespread parameter (at step 1112) and define a price out parameter (atstep 1114) for that order. The process proceeds to step 1122, where thesystem checks if any parameters have been breached. If a parameter isbreached, the order is cancelled at step 1124, otherwise process 1100proceeds to step 1130. At step 1130, the system matches the DD order tothe fullest extent possible and queues any unused portion of the orderfor potential subsequent use.

Note that the steps shown in FIG. 11 are merely illustrative and thatadditional steps may be added and some steps may be deleted or modified.

Thus, systems and methods for providing midprice trading are provided.One skilled in the art will realize that the present invention can bepracticed by other than the described embodiments, which are presentedfor purposes of illustration and not of limitation, and that the presentinvention is limited only by the claims which follow.

We claim:
 1. A method for trading an item within a spread market for theitem, the method being implemented on an electronic trading system, themethod comprising: communicating, by at least one processor, a pluralityof orders for the item to a plurality of market participants, each ordercomprising a buy/sell orientation defining whether such order is a bidto purchase the item or an offer to sell the item, such that thebuy/sell orientation of the plurality of orders is disclosed to theplurality of market participants in such a way that the plurality ofmarket participants are made aware of whether each of the plurality oforders is an order to buy the item or an order to sell the item, inwhich the plurality of orders comprises a best bid having a best bidprice and a best offer having a best offer price that is greater thanthe best bid price; receiving, by at least one processor, from a firstuser of the electronic trading system a first midprice order to buy orsell the item conditioned on an execution price of the first midpriceorder being greater than the best bid price and less than the best offerprice, in which the first midprice order to buy or sell the itemcomprises a buy/sell orientation defining whether the first midpriceorder is a bid to purchase the item or an offer to sell the item;communicating, by the at least one processor, the first midprice orderto a plurality of market participants such that the buy/sell orientationof the midprice order is not disclosed to the plurality of marketparticipants, such that the plurality of market participants are notmade aware whether the order is an order to buy the item or an order tosell the item; receiving, by the at least one processor, from a seconduser of the electronic trading system a second midprice order to buy orsell the item conditioned on an execution price of the second midpriceorder being within a spread market for the item, in which the secondmidprice order to buy or sell the item comprises a buy/sell orientationthat is contra to the buy/sell orientation of the first midprice order;matching, by the at least one processor, at least a portion of the firstmidprice order with at least a portion of the second midprice order;calculating, by the at least one processor, an execution midprice basedat least in part on a current best bid price for the item and a currentbest offer price for the item; and executing a trade for at least aportion of the first midprice order against the second midprice order atthe calculated execution midprice.
 2. The method of claim 1, in whichthe act of calculating the execution midprice comprises calculating aweighted average price based at least on a current best bid price and acurrent best offer price for the item, and at least one of a buy sideweight and a sell side weight, in which the calculated weighted averageprice is not equal to the average of the best bid price and the bestoffer price, and wherein the buy side weight is based on a number of buyside orders and the sell side weight is based on a number of sell sideorders.
 3. The method of claim 2, wherein the buy side weight comprisesa number of and respective sizes of buy side orders at the best bidprice and the sell side weight comprises a number of and respectivesizes of sell side orders at the best offer price.
 4. The method ofclaim 1, further comprising: receiving from a user a third midpriceorder for the item conditioned on a price of the item when the thirdmidprice order is executed being within the spread market and at leastone parameter that defines a range of market prices; and cancelling thethird midprice order based on a determination that the spread market hasmoved beyond the range of market prices.
 5. The method of claim 4,further comprising: after cancelling the third midprice order,determining that the spread market has moved within the range of marketprices; and reactivating the third midprice order based on the act ofdetermining that the spread market has moved within the range of marketprices.
 6. The method of claim 1, further comprising: receiving from auser a third midprice order for the item conditioned on a price of theitem when the third midprice order is executed being within the spreadmarket and at least one parameter that defines a threshold price; andcancelling the third midprice order based on a determination that aweighted average price for the spread market exceeds the definedthreshold price.
 7. The method of claim 1, wherein when the firstmidprice order is received, the first midprice order is substantiallyimmediately executed.
 8. The method of claim 1, in which the secondmidprice order is entered into the electronic trading system by thesecond user at a trading interface by selecting a midprice button thatis separate from any buttons used to select non-midprice orders.
 9. Themethod of claim 1, in which the act of executing a trade for at least aportion of the first midprice order against the second midprice order atthe calculated execution midprice comprises executing a trade for aportion of the first midprice order against a total quantity of thesecond midprice order at the calculated execution midprice, furthercomprising: queuing an untraded portion of the first midprice order foruse in subsequent trading.
 10. The method of claim 1, in which the actof communicating the first midprice order to the plurality of marketparticipants comprises causing a signifying mark to be displayed to theplurality of market participants, the signifying mark indicating to theplurality of market participants that at least one midprice order forthe item is active in the electronic trading system.
 11. A system fortrading an item within a spread market for the item comprising: at leastone processor; and memory that stores instructions which, when executed,direct the at least one processor to perform the following method:communicate a plurality of orders for the item to a plurality of marketparticipants, each order comprising a buy/sell orientation definingwhether such order is a bid to purchase the item or an offer to sell theitem, such that the buy/sell orientation of the plurality of orders isdisclosed to the plurality of market participants in such a way that theplurality of market participants are made aware of whether each of theplurality of orders is an order to buy the item or an order to sell theitem, in which the plurality of orders comprises a best bid having abest bid price and a best offer having a best offer price that isgreater than the best bid price; receive from a first user of theelectronic trading system a first midprice order to buy or sell the itemconditioned on an execution price of the first midprice order beinggreater than the best bid price and less than the best offer price, inwhich the first midprice order to buy or sell the item comprises abuy/sell orientation defining whether the first midprice order is a bidto purchase the item or an offer to sell the item; communicate the firstmidprice order to a plurality of market participants such that thebuy/sell orientation of the midprice order is not disclosed to theplurality of market participants, such that the plurality of marketparticipants are not made aware whether the order is an order to buy theitem or an order to sell the item; receive from a second user of theelectronic trading system a second midprice order to buy or sell theitem conditioned on an execution price of the second midprice orderbeing within a spread market for the item, in which the second midpriceorder to buy or sell the item comprises a buy/sell orientation that iscontra to the buy/sell orientation of the first midprice order; match atleast a portion of the first midprice order with at least a portion ofthe second midprice order; calculate an execution midprice based atleast in part on a current best bid price for the item and a currentbest offer price for the item; and execute a trade for at least aportion of the first midprice order against the second midprice order atthe calculated execution midprice.
 12. The system of claim 11, in whichthe act of calculating the execution midprice comprises calculating aweighted average price based at least on a current best bid price and acurrent best offer price for the item, and at least one of a buy sideweight and a sell side weight, in which the calculated weighted averageprice is not equal to the average of the best bid price and the bestoffer price, and wherein the buy side weight is based on a number of buyside orders and the sell side weight is based on a number of sell sideorders.
 13. The system of claim 12, wherein the buy side weightcomprises a number of and respective sizes of buy side orders at thebest bid price and the sell side weight comprises a number of andrespective sizes of sell side orders at the best offer price.
 14. Thesystem of claim 11, further comprising: receiving from a user a thirdmidprice order for the item conditioned on a price of the item when thethird midprice order is executed being within the spread market and atleast one parameter that defines a range of market prices; andcancelling the third midprice order based on a determination that thespread market has moved beyond the range of market prices.
 15. Thesystem of claim 14, further comprising: after cancelling the thirdmidprice order, determining that the spread market has moved within therange of market prices; and reactivating the third midprice order basedon the act of determining that the spread market has moved within therange of market prices.
 16. The system of claim 11, further comprising:receiving from a user a third midprice order for the item conditioned ona price of the item when the third midprice order is executed beingwithin the spread market and at least one parameter that defines athreshold price; and cancelling the third midprice order based on adetermination that a weighted average price for the spread marketexceeds the defined threshold price.
 17. The system of claim 11, whereinwhen the first midprice order is received, the first midprice order issubstantially immediately executed.
 18. The system of claim 11, in whichthe second midprice order is entered into the electronic trading systemby the second user at a trading interface by selecting a midprice buttonthat is separate from any buttons used to select non-midprice orders.19. The system of claim 11, in which the act of executing a trade for atleast a portion of the first midprice order against the second midpriceorder at the calculated execution midprice comprises executing a tradefor a portion of the first midprice order against a total quantity ofthe second midprice order at the calculated execution midprice, furthercomprising: queuing an untraded portion of the first midprice order foruse in subsequent trading.
 20. The system of claim 11, in which the actof communicating the first midprice order to the plurality of marketparticipants comprises causing a signifying mark to be displayed to theplurality of market participants, the signifying mark indicating to theplurality of market participants that at least one midprice order forthe item is active in the electronic trading system.
 21. Anon-transitory machine-readable medium having instructions storedthereon which, when executed by at least one processor, direct the atleast one processor to: communicate a plurality of orders for the itemto a plurality of market participants, each order comprising a buy/sellorientation defining whether such order is a bid to purchase the item oran offer to sell the item, such that the buy/sell orientation of theplurality of orders is disclosed to the plurality of market participantsin such a way that the plurality of market participants are made awareof whether each of the plurality of orders is an order to buy the itemor an order to sell the item, in which the plurality of orders comprisesa best bid having a best bid price and a best offer having a best offerprice that is greater than the best bid price; receive from a first userof the electronic trading system a first midprice order to buy or sellthe item conditioned on an execution price of the first midprice orderbeing greater than the best bid price and less than the best offerprice, in which the first midprice order to buy or sell the itemcomprises a buy/sell orientation defining whether the first midpriceorder is a bid to purchase the item or an offer to sell the item;communicate the first midprice order to a plurality of marketparticipants such that the buy/sell orientation of the midprice order isnot disclosed to the plurality of market participants, such that theplurality of market participants are not made aware whether the order isan order to buy the item or an order to sell the item; receive from asecond user of the electronic trading system a second midprice order tobuy or sell the item conditioned on an execution price of the secondmidprice order being within a spread market for the item, in which thesecond midprice order to buy or sell the item comprises a buy/sellorientation that is contra to the buy/sell orientation of the firstmidprice order; match at least a portion of the first midprice orderwith at least a portion of the second midprice order; calculate anexecution midprice based at least in part on a current best bid pricefor the item and a current best offer price for the item; and execute atrade for at least a portion of the first midprice order against thesecond midprice order at the calculated execution midprice.